Glossary of Terms used in FTSE Russell Methodology Documents v1.5

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1 Glossary of Terms used in FTSE Russell Methodology Documents v1.5 ftserussell.com December 2017

2 Contents A Acquiring Company Acquisition Alternatively Weighted Indexes Average Daily Dollar Trading Volume (ADDTV) B Basis Point Benchmark Benchmark Administrator Benefit Driven Incorporation (BDI) Buffer Zone C Capped Index Capped Weight Capital Index Composite Value Score (CVS) Constituent Corporate Action Corporate Event Country Classification Cumulative Market Capitalisation D DDS - Data Delivery System Divisor Dummy Line E ESG F Free Float / Float Foreign Headroom Foreign Ownership FTSE4Good Full Market Capitalisation G Growth Company H Home Country Indicators (HCI) I ICB Index Index Base Date Index Base Value Investable Market Capitalisation Investability Weighting IOSCO IOSCO Principles L Liquidity Screen M Market Adjusted Breakpoints Market Capitalisation Weighted Indexes Merger Methodology FTSE Russell Glossary of Terms used in FTSE Russell Methodology Documents, v1.5, December of 13

3 N Non-Domestic Exchange (NDE) Country Non-Linear Probability Algorithm (NLP) Non-Trading Days P Percentile Banding Primary Vehicle R Rank Day Rebalance Rebasing Reconstitution Reverse Merger Review Russell Global Classification Scheme ( RGS ) S Sharia (or Shariah) Indexes Shares in issue SRI Stability Probability Style Probability Synthetic Price T Target Company Total Return Index Tracking Stock Treasury Shares V Value Company Velocity W Weight Adjustment Factor (WAF) FTSE Russell Glossary of Terms used in FTSE Russell Methodology Documents, v1.5, December of 13

4 Glossary A Acquiring Company A company which is attempting to purchase another company. Acquisition An Acquisition involves an Acquiring Company purchasing a Target Company without forming a new company. Alternatively Weighted Indexes Indexes whose constituents are weighted according to some formula or rule other than the weights derived from market capitalisation used in traditional Market Capitalisation Weighted Indexes. They are designed to reflect the performance of investment strategies with specific diversification, risk reduction or factor objectives. FTSE Russell compiles the following alternatively weighted indexes, amongst others: Factor (or Smart Beta) Indices Indexes which weight constituents so as to mimic popular investment strategies which seek to capture the performance anomalies that have been observed historically to accrue to Value, Size, Quality and Momentum factors. Equally Weighted All index constituents have the same weight regardless of their market capitalisation or economic size. Fundamental Indexes which select and weight constituent companies according to measures of fundamental value, for example: assets, revenue, earnings, sales or dividends. Minimum Variance An index in which constituents are selected and weighted in order to minimise the volatility of index level performance using historical data. Average Daily Dollar Trading Volume (ADDTV) A measure of liquidity used as an eligibility screen in the construction of certain Russell indexes and for determining the most liquid country Home Country Indicator when assigning a company to a country. See the Russell US Equity Indexes Construction and Methodology document for further details. FTSE Russell Glossary of Terms used in FTSE Russell Methodology Documents, v1.5, December of 13

5 B Basis Point A unit of measurement, equal to 1/100th of 1%, or 0.01% Benchmark Historically the terms Benchmark and Index have been used interchangeably. Following the publication in July 2013 of the IOSCO Principles, the term Benchmark has taken a more specific meaning. The IOSCO definition is: A Benchmark contains prices, estimates, rates, indexes or values that are: a) Made available to users, whether free of charge or for payment; b) Calculated periodically, entirely or partially by the application of a formula or another method of calculation to, or an assessment of, the value of one or more underlying Interests; c) Used for reference for purposes including one or more of the following: determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments; determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument; and/or measuring the performance of a financial instrument. The forthcoming European Regulation of Indices used as Benchmarks in Financial Instruments and Financial Contracts may adopt a related, but not identical, definition; it is possible that this definition will include: an Index that is used to measure the performance of an investment fund. Benchmark Administrator An organisation that takes responsibility for all stages of the calculation, determination and dissemination of a Benchmark. The IOSCO Principles contain such a definition, as will the forthcoming European Regulation. Benefit Driven Incorporation (BDI) Companies may choose to incorporate in certain countries for operational, tax, and political benefits. FTSE Russell identifies these countries as BDI countries. A list of these countries is provided in the Russell US Indexes Construction and Methodology document. Companies that incorporate in BDI countries are subject to specific treatment when determining their country assignment for Russell index purposes. Buffer Zone See Percentile Banding. C Capped Index A Capped Index limits the weight of any single security (industry or country) in the index. The aim is to prevent any single security (industry or country) having a disproportionate influence on the index. Capped Weight The level at which the weight of a constituent may be limited at an index review, if it exceeds a certain percentage within a Capped Index. FTSE Russell Glossary of Terms used in FTSE Russell Methodology Documents, v1.5, December of 13

6 Capital Index A Capital Index sometimes referred to as a Price Index, measures the average price of constituents usually weighted according to the constituents Investability Weights. Comparing the index at different points in time provides a measure of the change in the value of the market or segment the Index is designed to represent. In contrast to a Total Return Index, a Capital Index does not take account of dividend income accruing to the constituents. Composite Value Score (CVS) A measure used to assign the weights to constituents of the Russell Value and Growth indexes. See the Russell US Equity Indexes Construction and Methodology document for further information. Constituent An individual security that is a member of an index. Corporate Action A Corporate Action occurs when there is a change to a company s capital structure. Unlike Corporate Events, Corporate Actions have a prescribed ex-date. The share price will be subject to an adjustment on the ex-date and FTSE Russell will adjust the index Divisor to counteract the effect that the price change would otherwise have on the index. Examples of corporate actions include rights or entitlement issues, consolidations, stock splits and capital repayments. Corporate Event A Corporate Event arises as a result of a company announcing a course of action that could result in significant changes to the company. Corporate Events do not have a defined ex-date. Examples include acquisitions, spin-offs, secondary share offerings and tender offers. Some Corporate Events will be subject to shareholder approval by the company shareholders; if the company has made a tender offer, approval will also be required from the Target Company shareholders. The treatment of Corporate Events is set out in the index Methodology documents. Country Classification FTSE classifies countries for developmental status according to a transparent rules-based process that assesses each country against a set of Quality of Markets criteria. Countries are classified as Developed, Advanced Emerging, Secondary Emerging or Frontier. The Country Classification Matrix can be found at: FTSE Country Matrix. Cumulative Market Capitalisation The cumulative running percentage total of the index constituents float-adjusted capitalisation usually calculated in descending order of float-adjusted market capitalisation. Cumulative Market Capitalisation may be used to establish size based percentile breakpoints for the construction of large, mid and small cap subsets of an index. D DDS - Data Delivery System FTSE's File Transfer Protocol (FTP) site, used to distribute end of day data files to clients. Divisor A component of the index calculation formula that is adjusted to account for the impact of i) Corporate Actions and Corporate Events, and ii) index additions and deletions on the index value. These adjustments ensure that the index values remain comparable over time. On the Index Base Date, the divisor is set equal FTSE Russell Glossary of Terms used in FTSE Russell Methodology Documents, v1.5, December of 13

7 to the aggregate float-adjusted market capitalisation of the index constituents divided by the chosen Index Base Value (e.g. 1000). Dummy Line Dummy lines are non-tradable instruments which have been temporarily created by FTSE in order to reflect a corporate event. Dummy lines are generally used to reflect the investor experience and to facilitate index replication. E ESG An acronym for Environmental, Social and Governance. ESG issues range from the treatment of staff, suppliers or shareholders to the environmental impact of the firm s activities or its governance standards. FTSE Russell calculates various indexes using ESG factors to screen constituents. F Free Float / Float The percentage of a company s shares that are considered to be freely available for public purchase. Determining a company s Free Float requires analysis and classification of the company s shareholders. The procedures for this are described in the index Methodology documents. Foreign Headroom The percentage of shares available to foreign investors as a proportion of the underlying investability weight (i.e. share investability / investability weight). Foreign Ownership In some cases, foreign ownership of a company's equity capital may be prohibited or restricted. When foreign ownership is prohibited these securities are excluded from FTSE Russell global indexes. When a limit is placed on foreign ownership that is more restrictive than the Free Float adjustment, the security will be included in the index but with a weighting which reflects the maximum holding available by foreign investors. FTSE4Good The FTSE4Good Index Series contains only constituent companies that meet globally recognised corporate responsibility standards. Full Market Capitalisation The combined value of all classes of equity capital for a company obtained by multiplying the number of shares in issue for each class by its market price and summing across the classes. No adjustments are made for Free Float or Foreign Ownership restrictions. G Growth Company FTSE Russell maintains a set of country and global style Indexes which allow investors to measure the performance of Growth or Value companies. Growth companies are defined as those with relatively strong growth characteristics assessed on various criteria related to past and expected future revenue and earnings growth. FTSE Russell Glossary of Terms used in FTSE Russell Methodology Documents, v1.5, December of 13

8 H Home Country Indicators (HCI) In determining the nationality of a particular company for the Russell indexes (including the Russell US Indexes family), FTSE Russell tests three home country indicators against reported assets and revenues. The three indicators are location of headquarters, location of most liquid listing and location of incorporation. I ICB The Industry Classification Benchmark (ICB) is a detailed and comprehensive structure for sector and industry analysis, facilitating the comparison of companies across four levels and across national boundaries. The classification system allocates companies to the subsector whose definition closely describes the nature of its business as determined by the source of its revenue or the source of the majority of its revenue, and the appropriate sector, supersector and industry classification automatically results. Index The forthcoming European Regulation of Indices used as Benchmarks for Financial Instruments and Financial Contracts is likely to include a definition of an Index along the following lines. An index means any figure: (a) that is published or made available to the public; (b) that is regularly determined, entirely or partially, by the application of a formula or any other method of calculation, or by an assessment; (c) where this determination is made on the basis of the value of one or more underlying assets, or prices, including estimated prices, or other values. (European Commission proposed wording). Index Base Date The date for which the Index Base Value applies. Index Base Value The arbitrary number (e.g. 1000) set on the Index Base Date as the starting value of an index. Investable Market Capitalisation A company's Full Market Capitalisation adjusted for Free Float restrictions and Foreign Ownership limits. Investability Weighting See Free float adjustment. IOSCO The International Organization of Securities Commissions. IOSCO Principles The principles set out in the final report of the Board of IOSCO on the Principles for Financial Benchmarks published in July L Liquidity Screen To be eligible for inclusion in a FTSE Russell index, a security must pass a liquidity screen. These screens are specific to each index series. FTSE Russell Glossary of Terms used in FTSE Russell Methodology Documents, v1.5, December of 13

9 M Market Adjusted Breakpoints In some Russell US indexes, new security additions, such as IPOs, are assessed against Market Adjusted Breakpoints. These breakpoints are determined by applying the performance of the Russell 3000E Index between the latest rebalance and current date to the latest reconstitution size breakpoints. Market Capitalisation Weighted Indexes Indexes in which the weight of a constituent is determined by market capitalisation adjusted for Free Float and Foreign Ownership Restrictions. Merger The combination of two companies to form a new company. Methodology The set of documents that describe how an index is determined. For FTSE indexes, the Methodology documents include the index Ground Rules, the Guide to Corporate Actions and Events, the Guide to Calculation Methods, and various policy documents that set out how the index will respond to unusual events. For the Russell US indexes, the Methodology is set out in the Russell US Equities Construction and Methodology document. N Non-Domestic Exchange (NDE) Country Some investable companies may be incorporated in countries that do not have domestic stock exchanges or exchanges that FTSE Russell recognizes as valid. In Russell indexes, these companies are assigned to the countries in which their primary equity issues are traded. Non-Linear Probability Algorithm (NLP) The NLP is used within both the Russell style and stability products and implements a nonlinear function to standardize or normalize, the values of security characteristics on a scale ranging from zero to one. For further details see the Russell US Equity Indexes Construction and Methodology document. Non-Trading Days Non-Trading Days are days during which a country s primary market is closed. On such days, no prices are available and no index values will be calculated for that country. Indexes that span more than one country will be calculated on days provided at least one country s primary market is open. P Percentile Banding Percentile Banding is used to create a buffer zone around the Cumulative Market Capitalisation breakpoints that are used to create large, mid and small capitalisation sub-indexes from a broad universe. The use of Percentile Banding allows previous membership to be considered in order to limit unnecessary index turnover. Its use places a higher threshold for new index constituents than existing members and restricts index memberships changes to those resulting from significant movements. Primary Vehicle As defined by FTSE Russell, the share class of a company with the highest two-year trading volume as of the last trading day in May. FTSE Russell Glossary of Terms used in FTSE Russell Methodology Documents, v1.5, December of 13

10 R Rank Day The day on which the data that determine index rebalance positions are collected. For the annual Reconstitution of the US Russell Indexes, Rank Day is the last business day in May and the security values used to determine index eligibility are taken from the close of business on that day. Rebalance See Review. Rebasing The process of scaling the time series values of two or more different indexes so that they have the same value at a given point in time. Rebasing facilitates direct comparisons between the performance of the different indexes. Reconstitution The annual process in which the Russell Indexes are completely rebuilt, taking into account changes in relative size and fundamental characteristics. Reconstitution ensures that companies continue to be correctly represented within appropriate market segments and that the indexes reflect the appropriate opportunity set. Reverse Merger A merger in which an index constituent is acquired or merged with a private, non-publicly traded company or OTC-traded company resulting in a publicly traded entity which is potentially eligible for index inclusion. Review The regular process (typically quarterly, semi-annually or annually) in which the eligibility and weights of constituents of FTSE indexes are reassessed. The Review process ensures that the indexes continue to accurately represent the market or segment that the indexes are designed to measure. Russell Global Classification Scheme ( RGS ) Similar to the Industry Classification Benchmark, a proprietary system for classifying companies into 9 sectors, 33 sub-sectors and 157 industries. S Sharia (or Shariah) Indexes Sharia indexes are indexes designed to meet the requirements of Islamic investors, as defined by Sharia law. Shares in issue As used in legacy FTSE index documentation and product files, shares in issue is defined as the number of shares outstanding excluding shares held in treasury and unissued shares. In recognition that in the US, shares in issue is frequently understood to include treasury shares, this term is being replaced in FTSE Russell documentation and product files by the term shares outstanding. SRI Sustainable and Responsible Investment. Companies can be assessed on the impact they have on the environment and society; SRI indexes are constructed to include only constituents that attain specified thresholds. FTSE Russell Glossary of Terms used in FTSE Russell Methodology Documents, v1.5, December of 13

11 Stability Probability A measure of company stability, used in the calculation of the Russell Stability Indexes, which split companies into those with primarily defensive or dynamic characteristics. See the Russell US Equity Indexes Construction and Methodology document for further information. Style Probability A measure of company style used to separate companies into those exhibiting primarily value or growth characteristics. See the Russell US Equity Indexes Construction and Methodology document for further information. Synthetic Price A Synthetic Price for an index constituent is used when the constituent has ceased to trade, or has yet to commence to trade, but where its value can be determined through its relationship to some other index constituent. As an example, the shares of a Target Company may be suspended whilst an Acquisition completes, but in the cases of share, or share and cash, offers their value can be deduced from the offer terms and the share price of the Acquiring Company. T Target Company A company which is the subject of an Acquisition or take-over. The Target Company is the firm that is being acquired. Total Return Index An index that calculates the performance of its constituents assuming that equity dividends or bond coupons are re-invested into the index on the ex-dividend date. Tracking Stock A line of stock issued to track the investment performance of a particular division, business unit, subsidiary or group of assets of the issuing company (the parent ). Treasury Shares Treasury shares held by the company, either via a buy-back/repurchase program or never issued to the public. Treasury shares are excluded from the FTSE shares in issue figure. V Value Company FTSE Russell maintains a set of country and global style Indexes which allow investors to measure the performance of Growth or Value companies. Value companies are defined as those with relatively low valuation measures. Velocity A measure of liquidity. It is calculated as the number of shares traded over a given period divided by the free-float adjusted shares in issue at the end of that period. FTSE Russell Glossary of Terms used in FTSE Russell Methodology Documents, v1.5, December of 13

12 W Weight Adjustment Factor (WAF) A factor applied to securities to achieve the appropriate index weighting in a non-market capitalisation indexes. FTSE Russell Glossary of Terms used in FTSE Russell Methodology Documents, v1.5, December of 13

13 Further Information To learn more, visit or call your regional Client Service Team office: EMEA +44 (0) North America Asia-Pacific Hong Kong Tokyo Sydney +61 (0) London Stock Exchange Group plc and its applicable group undertakings (the LSE Group ). The LSE Group includes (1) FTSE International Limited ( FTSE ), (2) Frank Russell Company ( Russell ), (3) FTSE TMX Global Debt Capital Markets Inc. and FTSE TMX Global Debt Capital Markets Limited (together, FTSE TMX ) and (4) MTSNext Limited ( MTSNext ). All rights reserved. FTSE Russell is a trading name of FTSE, Russell, FTSE TMX and MTS Next Limited. FTSE, Russell, FTSE Russell MTS, FTSE TMX, FTSE4Good and ICB and all other trademarks and service marks used herein (whether registered or unregistered) are trade marks and/or service marks owned or licensed by the applicable member of the LSE Group or their respective licensors and are owned, or used under licence, by FTSE, Russell, MTSNext, or FTSE TMX. All information is provided for information purposes only. Every effort is made to ensure that all information given in this publication is accurate, but no responsibility or liability can be accepted by any member of the LSE Group nor their respective directors, officers, employees, partners or licensors for any errors or for any loss from use of this publication or any of the information or data contained herein. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors provide investment advice and nothing in this document should be taken as constituting financial or investment advice. No member of the LSE Group nor their respective directors, officers, employees, partners or licensors make any representation regarding the advisability of investing in any asset. A decision to invest in any such asset should not be made in reliance on any information herein. Indexes cannot be invested in directly. Inclusion of an asset in an index is not a recommendation to buy, sell or hold that asset. The general information contained in this publication should not be acted upon without obtaining specific legal, tax, and investment advice from a licensed professional. No part of this information may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without prior written permission of the applicable member of the LSE Group. Use and distribution of the LSE Group index data and the use of their data to create financial products require a licence with FTSE, Russell, FTSE TMX, MTSNext and/or their respective licensors. FTSE Russell Glossary of Terms used in FTSE Russell Methodology Documents, v1.5, December of 13